Most small business owners can get the most convenience out of their commercial insurance by buying a business owners policy. Also known as BOPs, these are packages of insurance coverage that will offer several types of essential coverage that most businesses need. Among the policy options in most BOPs is property insurance. Commercial property insurance is critical protection that you can use to protect your structure and contents in case of unexpected or unavoidable accidents on the property.
However, when insuring contents, your policy will have different limits that will impact the settlement you can receive for your losses. Let’s take a deeper look at the way that your BOP can apply to your business’s contents and possessions.
What does a BOP’s property coverage insure?
When you buy a BOP, you will need contents insurance for all your belongings within the business. The benefit of having coverage is that it will help you pay to repair or replace damaged items in case of unexpected or unavoidable accidents on the property.
Suppose, for example, that during a severe storm, a tree falls through the roof of your office building. Not only does it damage the structure, but it also damages the items inside. You’ll need to repair or replace these items before you can get back up to speed. The policy can apply to multiple items within your business, including:
- Computer equipment
- Stock and inventory
- Certain personal belongings held within the business
Ideally, you want your BOP to compensate you as much money as possible for your lost possessions. However, your policy will contain limits and terms that will determine your final settlement for your losses. These might include:
- Coverage limits and sub-limits
- Cash value settlements
- Policy exclusions
Using each of these policy conditions, your insurer will be able to work out how much they will pay you for a claim. You can expand your coverage to make your policy limits apply the widest protection and minimize your potential losses.
Contents Coverage Limits
When you enroll in your BOP, you will have to choose a maximum limit to your policy. This is the maximum amount that your policy will pay you for any qualifying contents claims. For example, if you calculate that you have approximately $50,000 worth of contents in the business, then you will need at least $50,000 in contents coverage.
Even though you have a choice in your BOP’s maximum contents coverage limit, other terms might apply. For example, the policy might limit coverage on furnishings to $10,000. So, even if you have $50,000 in total contents coverage, you might only be able to receive up to $10,000 for damage to the furniture in the business. However, you will still have the $50,000 limit for your cumulative losses.
Cash Value Settlements
Not only will there be a limit to the total amount your policy will pay you, but there might also be a limit on how much the insurer will pay for certain items. When determining your settlement, your insurer will usually pay based on an item’s actual cash value. This is an item’s used value at the time of the loss.
Since most possessions depreciate with use, then the settlement you receive will likely have a value lower than the value of a new item. So, even though you might have bought a new piece of machinery for $5,000, it might only be worth $2,000 after ten years of use. A cash value settlement will equal the $2,000 of the used item. This will not affect the maximum limit of your policy. However, it might impact your ability to buy a new item.
Your contents coverage will likely include a deductible. This is a portion of a damage cost that you agree to pay on your own. Your insurer will therefore subtract this cost from your overall settlement.
If you have a $500 deductible on a policy, then you pay $500 for your own damaged possessions. So, if you make a $6,000 property damage claim, then you will pay the first $500 and your insurer will pay the remaining $5,500. Any damage claim that is less than the cost of your deductible will have no coverage at all. Therefore, always choose a deductible that you can afford to pay.
Expanding Your Policy
There are many ways you can expand your BOP to include more appropriate coverage for the value of your belongings. For example, you might want to buy a scheduled item rider for items of high value. That way, you’ll expand coverage for those items that you want to be able to replace in full.
Additionally, ask your agent if you qualify for replacement cost coverage instead of actual cash value coverage. With replacement cost coverage, you’ll receive compensation based on an item’s like-new value, rather than its depreciated value.
It’s important to comprehensively view all the items within your business as items of value. That way, you can determine the appropriate maximum limits and sub limits for your contents policy.